Sales are the starting point of a company's growth. It's good when a company's sales growth rate exceeds the rate of inflation. Generally, when sales increase, operating and net profits tend to rise even more. A company that shows small differences between the highs and lows of long-term profit trends is less affected by economic fluctuations, making it a strong company.

However, industries sensitive to economic cycles like steel, chemicals, shipbuilding, and automotive can see large swings in profits. They may also experience years of declining sales. In severe cases, net profits can fluctuate between profits and losses depending on the economy.

Companies where sales, operating income, and net income are all trending upwards tend to see a steady rise in their stock prices. It's important to remember that consistent increases in sales are often the starting point for rising stock prices.

Profit margin represents a company's margin. The higher the profit margin, the more profitable the company is. High-margin companies have lower costs (cost ratio) to produce their product (or service). Thanks to a lower cost ratio and higher profit margin compared to competitors, a company can secure enough funds to continue growing.

When looking at a company's profit margin, it's good to compare and analyze it against competitors in the same industry. If a company is achieving a higher profit margin than its competitors, it can be considered to have a more competitive product (or service) compared to others.

Most debt consists of borrowed funds from financial institutions. Unpaid credit from sold products (or services), also known as accounts receivable, is included in debt but usually isn't a major concern. Borrowings from financial institutions require the company to pay interest, so it's essential to ensure the amount is reasonable.

The debt ratio and current ratio indicate a company's short-term financial stability. A lower debt ratio and a higher current ratio mean greater financial safety. It's beneficial to compare these ratios with competitors in the same industry. Additionally, checking the interest coverage ratio and the cash flow statement can help identify companies at risk of default.

An investor's annual return comprises both the stock price appreciation and dividend yield. When investing in U.S. stocks, dividends account for about 20-30% of an investor's annual return. Dividend yield helps in achieving long-term returns for investors.

Dividends involve distributing a portion of a company's net income to shareholders in cash or stock. Strong companies consistently increase their dividends annually. The dividend yield is the ratio of the dividend per share to the stock's purchase price. For instance, if you buy Stock A at $100 per share and receive a $5 dividend per share, the dividend yield is 5% (= $5 / $100 * 100%). A dividend yield that is 1.5 times higher than the regular savings interest rate is considered attractive. If the savings rate is 1%, a dividend yield above 1.5% is attractive, and the higher the dividend yield, the better.

To find undervalued quality stocks, it's beneficial to look at the ROE & PBR chart. Companies with high ROE and low PBR are considered undervalued quality stocks. ROE represents the return on equity for shareholders, while PBR refers to the price paid for the stock. Therefore, it's desirable to have a high return (ROE) and a low price (PBR).

Generally, a high ROE is associated with a high PBR. However, market crashes or external shocks can lead to a drop in price (PBR), creating good buying opportunities, irrespective of an individual company's profits.

ROE, or Return on Equity, is calculated as (Net Income / Total Equity) * 100%. PBR, or Price to Book Ratio, is calculated as (Market Capitalization / Total Equity). Comparing ROE & PBR with competitors in the same industry can be more insightful.

Working Capital refers to the capital invested in creating and selling a company's products (or services). This includes not only the cost of purchasing raw materials and inventory but also the money from sales receivable and unpaid amounts for raw material purchases.

In manufacturing, the scale of working capital is linked to the size of the company's sales. Higher sales require more raw materials and result in higher receivables, thus increasing the working capital needed. Therefore, rather than just looking at the scale of working capital, it's better to check the Working Capital Turnover Days, which indicate how efficiently cash is being utilized.

Lower Working Capital Turnover Days are better. It means the company's cash cycle is faster, benefiting from a shorter period for converting cash → raw materials → products → accounts receivable → back to cash.

Working Capital Turnover Days are calculated as Accounts Receivable Turnover Days + Inventory Turnover Days - Accounts Payable Turnover Days. Accounts Receivable Turnover Days indicate the time it takes to collect cash from clients after sales, with lower being better. Inventory Turnover Days refer to the time taken from purchasing raw materials to producing and selling the products, with lower being better. Accounts Payable Turnover Days represent the time taken to pay suppliers after purchasing materials, with higher being beneficial for the company, but it also means delayed payments to suppliers, which should be considered in terms of mutual business sustainability.

The cash flow statement is essentially a ledger of cash transactions. It divides a company's activities into operating, investing, and financing activities and records the cash inflows and outflows for each. In the cash flow statement, cash inflows are marked as a plus (+) and outflows as a minus (-).

Operating Cash Flow starts with net income and accounts for cash inflows and outflows from operating activities. Strong companies consistently maintain a positive (+) operating cash flow.

Investing Cash Flow relates to cash transactions from purchasing or selling assets like machinery, plants, or financial assets. Typically, it shows as a minus (-) due to cash outflows for growth investments.

Financing Cash Flow includes cash transactions from activities like issuing stock, borrowing, or paying dividends. Companies generating sufficient cash from operating activities often show a minus (-) in financing cash flow due to paying off debts and distributing dividends.

Excluding periods with special activities, the ideal long-term pattern in a cash flow statement is positive (+) operating cash flow, negative (-) investing cash flow, and negative (-) financing cash flow.

The Price-Earnings Ratio indicates whether the current stock price is cheap or expensive compared to its fair value. PER shows how many times the market capitalization trades over the annual net income. A lower PER suggests that the stock is undervalued.

PER is a relative valuation metric, and it's beneficial to compare it with competitors in the same industry or companies with similar levels of sales and profits. If a company's PER is lower than its competitors', it's considered to be trading relatively cheap.

It's also advisable to look at the company's PER trend over a period of about 10 years. The PER is evaluated differently during periods of net income growth and decline. A higher net income growth rate usually results in a higher PER, indicating that the stock price may significantly increase if net income growth is high.

After reviewing the long-term movement of PER, including its highest and lowest points over the last 10 years, compare it with the current PER to assess if the stock is cheap or expensive. Generally, if the PER is around the long-term average, it could be considered for buying. If it's at historically high levels, more thorough scrutiny and caution are needed to assess if further profit growth is possible.

Stock prices and Earnings Per Share (EPS) can be seen as companions moving in the same direction. When EPS increases, the stock price usually rises. The Stock Price & EPS chart is used to analyze the two components forming the Price-Earnings Ratio (PER = Stock Price / EPS) to assess if the current PER is appropriate.

Generally, there are four scenarios for analysis:
- Strong Buy Consideration: EPS increases, stock price decreases or remains stable.
- Buy Consideration: EPS increases, stock price rises.
- Sell Consideration: EPS decreases, stock price remains stable or falls.
- Strong Sell Consideration: EPS decreases, stock price increases.

Even if the EPS increases, a market downturn causing a sharp decline in the stock price can present a good buying opportunity. Analyzing this alongside the PER chart can be more insightful.

Price to Book Ratio indicates how many times the market capitalization is trading over the recent total equity. A lower PBR suggests that the stock might be undervalued. However, since PBR is influenced by the Return on Equity (ROE), it's essential to analyze the current ROE and its sustainability.

Typically, a higher ROE leads to a higher PBR. If a company has a high ROE but trades at a lower PBR compared to others, it may indicate that the stock is undervalued. It is recommended to analyze this alongside the ROE & PBR chart.

Reviewing a company's PBR trend over about 10 years can be insightful. The PBR is valued differently depending on whether the ROE is high or low. Identify years in the past with an ROE similar to the current one, and compare the PBR at that time to assess the current stock's valuation.

Book Value Per Share (BPS) is a driving force behind a company's long-term stock price. BPS is calculated by dividing the total equity by the number of shares. It represents how much each share is worth in terms of the shareholder's equity.

Total equity fundamentally belongs to the shareholders. It comprises capital stock contributed by shareholders, capital surplus, retained earnings accumulated from net profits each year, and other comprehensive income from financial instruments or exchange rate fluctuations. Essentially, the faster a company grows its net income, the quicker the total equity increases, which in turn drives up the stock price.

However, U.S. companies often do not significantly increase their equity compared to Korean companies due to large dividend payments and stock buybacks and retirements. As a result, investment metrics that use total equity as the denominator, like the debt ratio (Debt/Equity * 100%) or Return on Equity (Net Income/Total Equity * 100%), tend to be relatively higher for U.S. firms than for Korean ones. Considering these factors when evaluating U.S. companies' debt ratios, borrowing proportions, and Price to Book Ratios (PBR) is advisable.

The Price to Sales Ratio (PSR) indicates how many times the market capitalization is trading over the ompany's sales. Like other valuation metrics, a lower PSR suggests that the stock may be undervalued. This indicator is particularly useful for evaluating companies that are temporarily in loss or sensitive to economic cycles.

This chart displays the trend of the stock price and Sales Per Share. Sales Per Share is calculated by dividing the company's total sales by the number of shares. Typically, the stock price and Sales Per Share move in the same direction.

In cases where a company has negative net income due to losses, using Price to Earnings Ratio (PER) or Price to Cash Flow Ratio (PCR) for valuation can be limiting. In such scenarios, the Price to Sales Ratio (PSR) is a useful alternative metric.